Best Mortgage Refinance 2017
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A mortgage refinance is a new home loan that pays off and replaces an existing home loan. Most homeowners refinance to take advantage of lower interest rates, to change the duration of the loan, to consolidate debt, to tap into home equity, to finance a large purchase, or to switch between fixed or adjustable rates.
Mortgage refinance can be a great solution for anyone wishing to lower their monthly mortgage payment in the event interest rates have dropped. Refinancing can also shorten or lengthen the life of your loan should it fit your needs. One might find themselves in the financial position that they can afford a higher payment and therefore refinance to shorten the loan term in order to pay off the mortgage faster. Certain types of mortgage refinance enable homeowners to remove their home's equity in the form of cash, and then bundle the borrowed amount back into the new loan.
The crucial factors to consider when choosing a mortgage refinance lender are the types of loans they offer, the difference in timeframe compared to your current loan, the difference in monthly payments, whether new closing costs and fees make a refinance viable in the first place, and how long you’re planning on staying in your home. Before starting to comparison-shop, ask yourself what you wish to obtain through the refinance, and if it makes sense as part of a larger financial plan for your future.
For instance, if you’re not planning on staying in your home long enough to recoup the closing costs, refinance may not be advisable. Another possibility is refinancing for a larger amount than your current mortgage, by tapping into your home equity, but this means taking on more debt and paying more interest in the long run. A similar problem occurs when you refinance to a longer term, which lowers your monthly rate, but extends the life of your loan, forcing you to pay more interest. Lastly, refinancing to consolidate and pay off high-interest debt can backfire if it’s not accompanied by effective budgeting.
Top 10 Companies
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- A wide variety of mortgage refinance options including cash-out and debt consolidation
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- A+ Rating with the BBB
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- Multiple Loan & Refinance Options to Fit Your Needs
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- Secure lower interest rates and reduce monthly payments
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- Obtain mortgage refinance loans for as much as $3 million
- Arizona, California, Colorado, Connecticut, Florida, Georgia, Illinois, New Jersey, North Carolina, Oregon, Pennsylvania, Washington, and Washington, D.C.
- Since January 2015, Better has originated $607 million in loans
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- Fast and simple online application
- Wide network of lenders to choose from
- Receive up to 4 messages per month
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- Determine if you are eligible for a HARP refinance
- Find the latest rates for purchasing and refinancing
- View refinance rates in your area
- Get tips in refinancing home loan
- Online tools available
- Easily compare mortgage rates online
How We Compare Mortgage Refinance
Generally, people choose to refinance for one of two reasons: to get a better rate or term, or to obtain money from their home. When considering a refinance, it's important to take into account a number of factors which will affect the mortgage. While refinance can be a great decision if it reduces your mortgage payment, shortens the term of your loan, or helps you build equity more quickly; it can also increase debt, and negate any potential savings if you plan on moving soon. Make sure to carefully study your options before reaching a final decision, and calculate your break-even point beforehand (the time it will take for the refinance to pay for itself).
There are various types of lenders for mortgage refinance, from traditional financial institutions (banks, credit unions, etc), to alternative lenders. The latter can take the form of direct lenders operating via online platforms, or online marketplaces, which consolidate a number of offers from various companies, so that customers can receive multiple competing quotes at once.
There are three main ways to refinance your mortgage. The first is a rate and term refinance, in which you change either your rate or your term or both. For instance, if your original mortgage was a 5/1 ARM, you may want to consider refinance when the five years are up, if you can fix in a more favorable rate. The second type is a cash-out refinance, which allows you to take cash out of your home when you refinance. A cash-in refinance is its exact opposite, in that the homeowner brings cash into the process.
Mortgage refinance loans can be divided into several types. The first is an Adjustable Rate Mortgage (ARM), in which you pay a fixed rate for a certain period of time, after which your rate changes yearly according to the market. Therefore, a 7/1 ARM means that you'll have a fixed rate for the first seven years, after which it will fluctuate. The second type is a fixed rate mortgage, which are generally issued for 15 or 30 year periods.
There are also some government-insured refinancing options. First is the Home Affordable Refinance Program (HARP), which refinances up to 125%, to help "underwater" homeowners whose loans are greater than the current market value of the property. The Federal Housing Administration (FHA) also offers cash-out and streamlined refinances. The US Department of Veterans Affairs (VA) have a cash-out option, as well as a rate reduction refinance for holders of an existing VA mortgage loan. Finally, the USDA offers a streamline refinance for homeowners in possession of non-delinquent 502 loans, which should be used to lower monthly interest and premium payments. The program does allow for a 102% refinance, with the additional money to be used for home improvement.
Fixed Year Terms
Fixed-rate mortgages are usually issued for 15 or 30 years, the latter being by far the most commonly used, especially for first-time buyers. Since this type of mortgage is a long-term proposition, it's best for people who plan to remain in the home for a considerable amount of time and can't afford or don't wish to pay a high monthly fee. 15-year terms build the same amount of stability, but monthly payments are higher. Equity does build up faster, however, and you'll pay less interest overall.
Adjustable Rate Mortgage Terms
The most popular adjustable-rate mortgage is the 5/1 ARM, in which homeowners pay a fixed rate for the first five years of the loan, followed by fluctuating yearly rates based on the index rate. Some companies also offer 3/1, 7/1, and 10/1 ARMs.
Maximum Loan Size
The maximum loan size is set by the financial institution issuing the refinancing loan, however, mortgages are considered jumbo when higher than the conforming limit set by the government agencies Freddie Mac and Fannie Mae ($424,100 and $636,150 in counties with high home prices). Jumbo loans are never government-backed or issued, and have stricter qualifying requirements.
As with any type of mortgage, lenders specializing in home refinance are going to look at a number of factors in order to determine your suitability. Knowing the requirements beforehand makes the application and approval process much easier and efficient. Companies are going to be looking at:
- Employment and Income - Lenders will want to look at pay stubs, (generally for the past three months).
- Tax returns - Usually, your W2 and/or 1099's for the last two years.
- Debt-to-Income Ratio - This includes both housing-related debt and all additional recurring monthly debt
- Credit Score - Lenders don't just look at the credit reports from all three bureaus, but also take into account if there is any derogatory credit such as bankruptcy or foreclosure (this can make you ineligible).
- Statement of Assets - Lenders like to see between 3-6 months of mortgage payments in reserve.
- Homeowner's Insurance and Title Insurance
- Collateral - This is generally in the form of home equity. To that end, most companies require an inspection and appraisal of the property.
The loan-to-value ratio (LTV) is a lending risk assessment ratio that financial institutions and lenders evaluate before issuing a mortgage. Loans with higher LTVs are seen as carrying more risk, and are therefore more costly. The LTV is calculated as the amount of the mortgage lien divided by the appraisal value of a property, expressed as a percentage. For instance, a a borrower taking on a $78,400 mortgage to purchase or refinance a home valued at $100,000 would have an LTV ration of 78.40%.
Minimum Credit Score
As a rule of thumb for any financial loan transaction, lenders will offer better terms to borrowers with good credit, (700 or above). Scores below 600 generally indicate a higher risk for lenders, and a standard score of 620 is usually the minimum.
FHA Minimum Credit Score
The Federal Housing Administration (FHA) has specific credit requirements that include the downpayment percentage. As of 2017, a score of 580 or higher requires a 3.5% downpayment, and a score any lower than 580 must include a 10% downpayment.
Maximum Debt-to-income ratio
Your debt-to-income ratio refers to the sum resulting when you divide all your monthly debt payments by your monthly income. Generally speaking, the highest debt-to-income ratio that a borrower can have and still get a mortgage is 43%.
When you finance or refinance a home using a mortgage, your interest rate is based on the time it takes to close: the fewer days it takes to get you from "rate lock" to closing, the lower your mortgage rate will be. For every additional 15 days it takes to close your loan, your quoted mortgage rate increases by 12.5 basis points (0.125%). On average, it takes 50 days to close a home loan.
When researching mortgage lenders for your refinance, it's important to make sure that they have a good reputation, as others' experiences can be an excellent indicator of the lender's trustworthiness and integrity. There are a number of ways to verify this, chief of which is searching the Nationwide Mortgage Licensing System's database, in which every mortgage lender is required to register by law. Other good sources are consumer protection agencies such as the Consumer Financial Protection Bureau, and websites like TrustPilot or the Better Business Bureau.
Nationwide Mortgage Licensing System ID
The Nationwide Mortgage Licensing System and Registry, (NMLSR or National Registry), is a national registration system for mortgage loan originators (MLOs) to register and submit required information about themselves and their backgrounds as required by law. The database is easily searchable by consumers as well.
Nationwide Mortgage Regulatory Actions
The NMLSR requires MLOs to disclose any and all disciplinary actions taken against them, and these are publicly displayed on the consumer-access section of their registry. These disciplinary actions can be criminal, regulatory, civil judicial, or civil regulatory.
Trustpilot is an online review community in which customers with real-life experience with companies can share their experiences. A good rating on their website is a generally good indicator of trustworthiness and good customer service.
BBB Positive Reviews
The Better Business Bureau has been helping consumers make informed decisions for over one hundred years. They help set the standards for marketplace trust, as a function of two factors: integrity and consistent performance. They not only provide customer reviews, but also accredit companies when they meet the BBB's standards.
CFPB Total Mortgage Complaints
The Consumer Financial Protection Bureau (CFPB) is a government agency dedicated to making sure that banks, lenders, and other financial institutions treat their customers fairly. They protect consumers from unfair, deceptive, or abusive practices and take action against companies that break the law. Complaints against companies are all publicly available on their federal database, making it easy for consumers to verify a business' reputation.
The data displayed here represents complaints related to all Mortgage related financial products, not specifically Mortgage Refinancing.
Customer Questions & Answers
What is mortgage refinancing?
Mortgage refinancing replaces an existing mortgage with a new one in order to obtain a better interest rate, or to switch from a variable to fixed structure. This process is more advisable for those with good credit than bad, especially in times of economic uncertainty. If handled irresponsibly, interest rates can increase rather than decrease.
What is a HARP loan?
A Home Affordable Refinance Program (HARP) loan is one backed by the Federal Housing Finance Agency. It is intended for those homeowners who are up-to-date on their mortgage payments, but have very little equity in their homes. In practice, HARP loans are used to help qualified borrowers refinance their home mortgages.
When should I refinance my mortgage?
The best time to refinance a mortgage is within the first third of the term, as monthly installments during that period largely go towards interest repayment. In the case of a 30 year term, refinancing for a lower interest rate within the first 10 years will yield more demonstrable effects than later in the term.
Who should refinance their mortgage?
Mortgage refinancing is best for those with good credit whose current mortgage has an interest rate above the nationwide average. Conversely, if the borrower has bad credit, then their mortgage interest rates could increase, rather than decease. If the borrower cannot afford said increase, then they should not attempt to refinance.